Supreme Court Preserves Patent Trial and Appeal Board, but with Greater Executive Oversight

Supreme Court Preserves Patent Trial and Appeal Board, but with Greater Executive Oversight

Legal Sidebari

Supreme Court Preserves Patent Trial and
Appeal Board, but with Greater Executive
Oversight
June 29, 2021
In 2011, Congress enacted a major patent reform bill, the Leahy–Smith America Invents Act (AIA).
Among other things, the AIA created new adversarial administrative proceedings within the Patent and
Trademark Office to review the validity of already-issued patents and cancel those that should not have
been issued. The Patent Trial and Appeal Board (PTAB) conducts these proceedings, which include inter
partes review (IPR) (as well as other procedures like post-grant review). PTAB consists primarily of
hundreds of administrative patent judges (APJs), who sit in panels of three to rule on the validity of
patents challenged through IPR. The Secretary of Commerce (the Secretary), in consultation with the
Director of the Patent and Trademark Office (the Director), appoints APJs to the PTAB. Because of the
economic importance of patent rights, millions or even billions of dollars may be at stake in these
proceedings.
The Supreme Court agreed to hear United States v. Arthrex to determine whether the authority exercised
by APJs was consistent with the Constitution’s Appointments Clause. By a vote of 5 to 4, the Court held
that APJs exercised authority that was “incompatible with their appointment by the Secretary to an
inferior office.” In the majority’s view, only principal officers nominated by the President and confirmed
by the Senate may issue “final decision[s] binding the Executive Branch” in administrative adjudications
like IPRs. APJs, however, were appointed as inferior executive officers by the Secretary, and no
presidentially appointed officer—such as the Director—had sufficient power to review PTAB decisions.
In short, the Court held that the structure of the PTAB violated the Constitution because inferior officers
may not exercise “unreviewable executive power.”
Despite this constitutional flaw, the Court did not invalidate the PTAB or the administrative processes
created by the AIA. Instead, a different majority of Justices concluded that the appropriate remedy in
Arthrex was to grant the Director unilateral power to review PTAB decisions. Although the AIA
specifically insulated PTAB decisions from further review within the executive branch—providing that
“[o]nly the [PTAB] may grant rehearings”—the Court severed this statutory provision, permitting the
Director “discretion” to rehear PTAB decisions. In this way, the Court remedied the constitutional
problem while preserving IPR and the PTAB.
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This Sidebar first reviews the legal background on the Appointments Clause and the PTAB, and describes
the facts and history of the dispute in Arthrex. Next, it analyzes the Court’s opinions in Arthrex and
possible considerations for Congress in the wake of the decision.
Legal Background
The Appointments Clause
The Appointments Clause—Article II, Section 2, Clause 2 of the Constitution—provides the method of
appointment for “Officers of the United States,” which include cabinet-level officials, agency heads, and,
in some circumstances, federal employees who preside over agency adjudications. The Clause does not
apply to those who are “simply employees” of the federal government—only to “officers” who “occupy a
continuing position created by law” and exercise “significant authority pursuant to the laws of the United
States.” If an officer rendering an agency decision was not appointed in a proper manner, an affected party
challenging the appointment may be entitled to a new decision by a properly appointed adjudicator.
The default method of appointment for federal officers under the Appointments Clause is presidential
appointment with the advice and consent of the Senate. However, the Clause also creates an exception to
that procedure, providing that Congress may vest the appointment of “inferior [o]fficers” in “the President
alone, in the Courts of Law, or in the Heads of Departments.” Thus, department heads (such as the
Secretary) may appoint inferior officers, when Congress grants such authority by statute. Only the
President, however, may appoint non-inferior “Officers of the United States”—whom the Supreme Court
refers to as principal officers—with the Senate’s advice and consent.
In short, there are two relevant considerations in determining the status of a federal worker for
Appointments Clause purposes: (1) whether that person is an “officer” or a “mere employee”; and (2) if
an officer, whether that person is a “principal” or an “inferior” officer. Arthrex concerned the second
question: all parties agreed that APJs are not employees, but they disputed whether APJs are principal or
inferior officers.
The Supreme Court has not set forth an “exclusive criterion for distinguishing between principal and
inferior officers for Appointments Clause purposes.” However, two decisions set forth the main
considerations for this analysis. In Morrison v. Olson, the Supreme Court took a multifactor approach in
deciding whether an independent counsel appointed under the Ethics in Government Act was a principal
or an inferior officer. The Court reasoned that the independent counsel was “clearly” an inferior officer
because (1) he was “subject to removal by a higher Executive Branch official”; (2) the statute authorized
him “to perform only certain, limited duties”; and (3) his office was limited in “jurisdiction” and “tenure.”
More recently, the Court has applied the approach in Edmond v. United States, emphasizing the degree to
which a particular official was supervised by other executive officers in the formal chain of command.
Edmond stated that “[w]hether one is an ‘inferior’ officer depends on whether he has a superior.” Thus,
“inferior officers” are those “whose work is directed and supervised at some level by others who were
appointed by Presidential nomination with the advice and consent of the Senate.” The Edmond Court
concluded that the military judges whose appointments were in question had the requisite supervision to
qualify as inferior officers. A higher-level official could remove military judges from their judicial
assignments “without cause”—a “powerful tool for control.” Additionally, military judges had “no power
to render a final decision” on the federal government’s behalf “unless permitted to do so by other
Executive officers.”
Administrative Patent Judges
Any person—other than the patent holder—may petition the Director to institute an inter partes review
(IPR) of an existing patent. The purpose of IPR is to reconsider whether the claims of an issued patent

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meet the novelty and nonobviousness requirements for patentability. If instituted, a panel of three APJs
oversees the IPR proceeding. APJs may compel testimony and production of documents; rule on the
admissibility of evidence; impose sanctions; hold an oral hearing; and ultimately issue a written decision
on the validity of the patent in dispute. If an APJ panel rules that a patent is invalid, a party may appeal
that determination directly to the U.S. Court of Appeals for the Federal Circuit. Unless the Federal Circuit
overturns the PTAB decision, the patent claims at issue are canceled; that is, they no longer have any legal
effect.
APJs are appointed by the Secretary of Commerce in consultation with the Director of the Patent and
Trademark Office. The President appoints both the Secretary and the Director with the advice and consent
of the Senate. The Director is a member of the PTAB, and maintains a degree of authority over the APJs.
The Director may, among other things, determine the composition of APJs on each PTAB panel; issue
regulations governing the conduct of PTAB proceedings; or designate a PTAB decision as precedential
and thus binding on future panels. That said, the Director lacks direct statutory authority to overturn APJs’
decisions in IPR proceedings; review is available only by the PTAB itself or by appeal to the Federal
Circuit. In addition, neither the Secretary nor the Director can remove an APJ without cause.
The Dispute in Arthrex
Arthrex, Inc. owns a patent relating to a knotless suture securing assembly used in medical surgery. Smith
& Nephew, Inc. were accused of infringing Arthrex’s patent. In response, Smith & Nephew sought the
cancellation of Arthrex’s patent through IPR. A panel of three APJs heard the IPR and determined
Arthrex’s patent was invalid and therefore should be canceled. Arthrex appealed to the Federal Circuit,
arguing the appointment of the APJs violated the Appointments Clause because they are principal officers,
but were not appointed by the President with the advice and consent of the Senate.
The Federal Circuit agreed with Arthrex, holding that APJs are principal officers because of the
significant “rights and responsibilities” they hold. In determining whether APJs are principal or inferior
officers, the Federal Circuit interpreted Edmond as emphasizing three criteria: whether the superior has
the power to review, to supervise, and to remove the purportedly inferior officer. The Federal Circuit
analyzed each of those factors to determine whether the Secretary and the Director exercised sufficient
control over the APJs to render the APJs inferior officers. The Federal Circuit found that two factors
weighed in favor of finding that APJs are principal officers: the Director cannot “single-handedly review,
nullify or reverse” a panel decision or unilaterally rehear a decision; and the Director could only remove
an APJ for “such cause as will promote the efficiency of the service.” The other factor weighed in favor of
inferior officer status, as the Federal Circuit determined that the Director may exercise significant
supervisory power by promulgating regulations and policy interpretations governing how APJs conduct
IPRs. On balance, after considering these factors, the court concluded that APJs are principal officers who
were not appointed in the constitutionally required manner.
To remedy the violation, the Federal Circuit took what it perceived to be the “narrowest viable approach”
to correcting the constitutional defect while preserving the statutory scheme Congress enacted. It severed
statutory for-cause removal protections as applied to APJs, vacated the underlying PTAB decision, and
remanded the case for a decision by a panel of properly appointed APJs. Arthrex, Smith & Nephew, and
the federal government all petitioned for Supreme Court review. The Court granted the petitions to review
both the Federal Circuit’s merits holding on the appointments issue and its choice of remedy.

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The Arthrex Decision
The Court’s Appointments Clause Analysis
Chief Justice Roberts (joined by Justices Alito, Gorsuch, Kavanaugh, and Barrett) delivered the Court’s
opinion on the merits of the Appointments Clause issue. Unlike the Federal Circuit, the Court did not
explicitly find that APJs were principal officers under the PTAB structure Congress enacted in the AIA.
Rather, the majority found a constitutional violation in the mismatch between the unreviewable
decisionmaking authority exercised by APJs and their appointment to an inferior office, holding that
“[o]nly an officer properly appointed to a principal office may issue a final decision binding the Executive
Branch in [an IPR].”
Like the Federal Circuit, the Supreme Court relied primarily on Edmond in considering whether APJs are
inferior or principal officers. As previously noted, Edmond held that certain military judges were inferior
officers because their work was “directed and supervised at some level by” presidentially appointed
executive officers. In contrast, Chief Justice Roberts found that “review by a superior executive officer”
was lacking with respect to APJs. The majority reasoned that because only the PTAB itself (and not the
Director) can grant rehearing of PTAB decisions, APJs effectively have the final word in the executive
branch on PTAB’s patentability decisions in IPRs. Although the Director has a variety of tools to control
APJs (e.g., setting their pay, panel assignment, the decision to institute IPR, and IPR regulations), the
Court found that these less-direct means of control, if exploited as “machinations” to affect IPR
outcomes, would only “blur the lines of accountability” for PTAB decisions within the executive branch.
As a result, the majority held that “the unreviewable executive power exercised by APJs is incompatible
with their status as inferior officers.”
Justice Thomas (joined by Justices Breyer, Sotomayor, and Kagan) dissented on the merits issue, holding
that the PTAB’s structure was consistent with the Appointments Clause. In Justice Thomas’s view, APJs
are plainly inferior officers for two main reasons. First, they are “lower in rank to at least two different
officers”—the Director and the Secretary. Second, APJs are “functionally” inferior because the Director
has a number of tools to supervise and control APJs. Comparing the oversight of APJs to the judges at
issue in Edmond, Justice Thomas argued that the Director’s functional control over APJs was “greater”
than in Edmond: the Director decides in the first instance whether to institute an IPR at all, controls which
APJs are assigned to the panel, and can add additional members (including himself) to PTAB panels.
Justice Breyer (joined by Justices Sotomayor and Kagan) joined most of Justice Thomas’s dissent, but
also wrote separately to emphasize his view that the Court’s recent separation-of-powers jurisprudence
had taken a “mistake[n]” turn toward inflexible formalism. Justice Breyer argued that the Appointments
Clause grants Congress “a degree of leeway” in establishing and empowering federal offices, and that the
Court should “take account of, and place weight on, why Congress enacted a particular statutory
limitation” and consider the “practical consequences” of that choice. In this case, Justice Breyer argued
that the Court should have considered the “technical nature of patents, the need for expertise, and the
importance of avoiding political interference” as reasons supporting Congress’s decision to give APJs a
degree of independence from politics.
The Court’s Analysis of Severability and Remedy
Chief Justice Roberts delivered a plurality opinion (joined by Justices Alito, Kavanaugh, and Barrett) on
the appropriate remedy for the Appointments Clause violation. The Chief Justice rejected Arthrex’s
request to hold the entire IPR regime unconstitutional, instead opting to “sever[] the unconstitutional
portion” of the statute while preserving the rest. Because APJs are inferior officers “[i]n every respect
save the insulation of their decisions from review within the Executive Branch,” the Court reasoned, the

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proper course was to allow the Director to review final PTAB decisions. The Court accomplished this by
holding that 35 U.S.C. § 6(c)—which limits the power to rehear PTAB decisions—was unenforceable as
applied to the Director. The Court’s remedy thus differed both from the Federal Circuit (which chose to
allow the Secretary at-will removal power over APJs to cure the constitutional violation) and the more
sweeping remedy urged by Arthrex.
To provide a majority on the appropriate remedy, Justices Breyer (joined by Justices Sotomayor and
Kagan) concurred in that part of the Court’s judgment. Although these Justices did not agree that there
was a constitutional violation at all, they did agree that granting the Director power to review PTAB
decisions would address the constitutional violation identified by the majority.
Justice Gorsuch joined Chief Justice Roberts’s majority opinion on the merits, but dissented on the
remedial issue. In Justice Gorsuch’s view, the Supreme Court’s “severance” doctrine—in which the Court
excises part of a statute to cure a constitutional problem—is inappropriate when there is more than “one
possible way” to cure the constitutional problem and Congress has not provided any specific direction.
Justice Gorsuch urged the Court to instead follow a “traditional” approach of declining to enforce the
statute in the case at hand—effectively allowing for challengers to vacate PTAB decisions until the
constitutional problem is fixed—in order to avoid having the Court guess “what a past Congress would
have done if confronted with a contingency it never addressed.”
Possible Consequences of Arthrex
The consequences of Arthrex for the PTAB appear straightforward: APJs will continue to decide IPR
proceedings; the Director has discretionary power to review their decisions. Observers expect that the
Patent and Trademark Office will soon issue rules or guidance as to how the Director will exercise this
rehearing authority, which commentators expect will likely extend to at least post-grant review and
covered business method reviews as well.
While the Arthrex ruling was limited to IPR, the case raises several broader questions of possible interest
to Congress because of its potential effects on agency adjudications outside of the patent context.
First, the Arthrex majority identified two boards that are similar to the PTAB. The first is the Civilian
Board of Contract Appeals, an “independent tribunal” within the General Services Administration that
“resolve[s] contract disputes between government contractors and agencies.” Board members are
appointed by the Administrator of General Services (i.e., not through advice-and-consent) and can only be
removed for cause. The second board named in the decision is the Postal Service Board of Contract
Appeals, whose judges are appointed by the Postmaster General. Both boards are authorized to issue
“final” written decisions. Although these decisions may be appealed to the Federal Circuit, the relevant
statute does not authorize review by a principal officer in the executive branch. Thus, “[w]hatever distinct
issues” these boards might present, the absence of “principal officer review” may lead to legal challenges
based on the reasoning of Arthrex.
Second, although the Supreme Court did not mention it in the Arthrex opinion, the Federal Circuit
repeatedly compared APJs to Copyright Royalty Judges (CRJs) in its decision. In 2012, the D.C. Circuit
ruled that CRJs, who “set the terms of exchange for musical works” through royalty rate determinations,
were principal officers. In that case, Intercollegiate Broadcasting System v. Copyright Royalty Board, the
court reasoned that CRJs were “supervised in some respects” by the Librarian of Congress (who appoints
them) and by the Register of Copyrights, “but in ways that leave broad discretion.” In particular, the
Librarian, a principal officer, could only remove CRJs “for misconduct or neglect of duty.” Although the
Register, who is appointed by the Librarian, “reviews and corrects any legal errors in the CRJs’
determinations,” such review on “pure issues of law,” the court determined, “plainly leaves vast discretion
over the rates and terms.” Accordingly, the court concluded that “the Register’s control over the most

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significant aspect of the CRJs’ determinations—the rates themselves—is likely to be quite faint.” The
D.C. Circuit invalidated only the portion of the statute limiting the Librarian’s ability to remove CRJs,
thus rendering CRJs, in the court’s view, inferior officers. The Federal Circuit in Arthrex modeled its
remedy after this approach, but the Supreme Court suggested that this resolution was inadequate for APJs
because it failed to subject APJs’ decisions to meaningful executive review. Accordingly, while the
“direction and control” over CRJs’ rate determinations might be distinguishable from APJs in IPR, there
could be a renewed focus on the constitutionality of CRJs’ appointments as inferior officers as a result of
the Arthrex decision.
Third, the Arthrex opinion may have ramifications for other types of agency decisions. In Lucia v. SEC,
the Court clarified that administrative law judges (ALJs) need not have the authority to render final,
binding decisions in order to be officers—their duties and discretion in presiding over adversarial
hearings were enough to make them inferior officers. Arthrex implies that adjudicators whose decisions
are not only potentially final, but also unreviewable within the executive branch, may be principal
officers. At the same time, the plurality cautioned that “[m]any decisions by inferior officers do not bind
the Executive Branch to exercise executive power in a particular manner” and did not opine on
“supervision outside the context of adjudication.” In these circumstances, it is unclear whether this rule
would apply in agency proceedings that do not share the trial-like procedures of IPR. For example, within
the Social Security Administration (SSA), the Appeals Council issues the “final action” for the agency in
appeals from certain benefits determinations. According to SSA, at least since July 2018, administrative
appeals judges on the Appeals Council have been appointed by the Commissioner or Acting
Commissioner of the SSA. Because these administrative appeals judges are appointed as inferior rather
than principal officers, Arthrex could provide another basis for challenging SSA benefits determinations
under the Appointments Clause, though the nature of these SSA determinations could be distinguishable.
Thus, while open questions remain, Arthrex adds another marker on the line between principal and
inferior officers.

Author Information

Kevin J. Hickey
Victoria L. Killion
Legislative Attorney
Legislative Attorney

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